Shares of Howden Joinery jumped almost 7% after the UK kitchen appliances company said that it now expects FY2020 profit before tax to be around 10% above the top end of current analyst forecasts.
The financial update comes as Howden Joinery (GB:HWDN) has seen strong demand for its fitted kitchens and its appliance products during the coronavirus pandemic. Howden said analysts had been expecting a pre-tax profit of between £123 million to £152 million for 2020. The company is scheduled to release its 2020 preliminary results, including an update on market conditions, on February 25, 2021.
In the UK, Howden is engaged in the sale of kitchen and joinery products to primarily small local builders, through more than 730 depots. Around one-third of the products it sells are manufactured at the company’s own factories in Runcorn, Cheshire, and Howden, East Yorkshire. The business also operates a total of around 30 depots in France and Belgium.
During the month of November, the company reported that sales continued to be strong, as its UK depots’ total revenue during the period rose by 18.8% and by 17.2% on a same depot basis. Since the start of the year until the end of November, total UK sales grew 5.1%, but growth was still below the level generated in 2019.
Following the sales performance update, Canaccord Genuity analyst Aynsley Lammin raised the stock’s price target to 675p from 620p, but reiterated a Hold rating.
“Having good stock levels and a well-oiled supply chain has clearly helped it outperform competitors. With a very strong second half of 2020 now confirmed, the focus will be on what revenue looks like in 2021 and whether it reaches 2019 profit levels in 2021,” Lammin commented in a note to investors. “At this point, we continue to expect those levels of profitability to be reached in 2022 rather than 2021 given the macro headwinds, but given the strong momentum seen in recent months, more branches and decent pricing, we believe the risk to our 2021 profit estimates remains on the upside.”
“The balance sheet also looks very strong and supportive of a decent dividend being paid for 2020 with share buybacks potentially also being reinstated in 2021 assuming trading holds up,” the analyst summed up. (See HWDN stock analysis on TipRanks)
The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 2 Buys and 2 Holds. The average price target stands at 652p and implies 4.6% downside potential from current levels.
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